Equality spokeswoman and Solihull MP Lorely Burt called on Ms Kelly - a practising member of the Opus Dei branch of the Catholic church - to stand down immediately.

Ms Burt was responding to a report in the Observer that Ms Kelly was blocking proposals to stop schools, companies and other agencies from refusing services to people on the grounds of their sexuality.

She said: "The Government must not water down these proposals. We had always feared that Ruth Kelly's personal beliefs would make her unsuitable to be a champion of gay rights.

"Unfortunately these fears have become reality and she should now stand down."

However, a spokesman for Ms Kelly branded the Liberal Democrat statement "absurd".

"Their comments are completely absurd because they are based on a story full of factual inaccuracies," he added.

A spokesman for the Department for Communities and Local Government added: "We are committed to bringing forward proposals that provide effective protection from discrimination on the basis of sexual orientation.

"The delay is purely a result of the huge response to the consultation with over 3,000 responses received." He added: "This is a complex area so it is only right that we take the time to consider them fully and carefully to make sure our proposals are workable and provide effective protection from discrimination."

The Liberal Democrat attack came as the simmering row over religious relations in Britain threatened to boil over, with a series of politicians making high-profile interventions on the issue.

Critics accuse Opus Dei of being a secretive sect, and members are said to be obliged to promote the evangelising mission of the Catholic Church through their professional work.

The group is a strong advocate of traditional Catholic values, including opposition to abortion and artificial contraception.

Ms Kelly has previously faced questions over whether her membership of the group is compatible with the equality element of her brief.

She has come under fire for repeatedly refusing to say in interviews whether she thinks homosexuality is a sin.

Ms Burt has gained a reputation for being outspoken since she became Solihull's first Liberal Democrat MP at the General Election last year.

Last week she criticised Heinz for staging a marketing event in Solihull's Touchwood shopping centre, only weeks after the company decided to shut the Aston HP Sauce factory.

Ms Burt defeated sitting Tory MP John Taylor in Solihull by one of the narrowest margins of the 2005 election.